Insights

Boilerplate Arbitration Clauses: Not Foolproof

A recent Ontario Superior Court of Justice decision highlighted the need to draft arbitration clauses with precision in contractual agreements. In 2156775 Ontario Inc. v. Just Energy Ontario LP, the enforceability of an arbitration clause was in dispute.

The plaintiff alleged that the Agreement was not executed by a person with signing authority, that it was based on negligent or fraudulent misrepresentations and was therefore void. The defendant submitted that the dispute should be resolved in arbitration where the arbitrator would be chosen by Just Energy and the decision would be binding, with no right to appeal.

The specific wording of the arbitration clause was as follows:

“Customer may contact Just Energy with regard to a concern or dispute under this Agreement… such a dispute will be referred to and finally resolved by binding arbitration pursuant to Governing Law, before a single arbitrator…”

Judge W. Matheson held that because the boilerplate clause unambiguously stated, “under this Agreement,” the clause only applied to disputes “under” the agreement and not disputes pertaining to the validity of the agreement itself. This is not to suggest that validity disputes are always exempt from being subject to an arbitration clause. Rather, broader wording must be used such as “in connection with,” “arising out of” or “touching or concerning,” as they would encompass a broader range of disputes including the dispute at hand. Because such narrow wording was used in this case, the defendant could not enforce the arbitration clause.

“Boilerplate” or “standard terms” clauses can be expected to be viewed by the courts with heightened scrutiny. Arbitration clauses should be drafted carefully in order to ensure that they operate as intended by all parties to an agreement.